Understanding Corporate Dissolution/Liquidation Procedures in South Korea

 

Closing a business entity in South Korea, whether it’s a domestic corporation or a foreign branch office, involves a series of legal and administrative steps. This blog post provides an overview of the corporate dissolution and liquidation process in South Korea, outlining the key steps and requirements.

1. Board Resolution:

• The first step in the dissolution process is for the company’s board of directors or shareholders to pass a resolution to close the business. This decision should be documented in meeting minutes.

2. Appointment of Liquidator:

• A liquidator is appointed to handle the winding-up process. The liquidator’s role is to collect and distribute the company’s assets, settle its liabilities, and complete the dissolution process.

3. Corporate Tax Reporting at Phases:

• Throughout the dissolution and liquidation process, the company is required to submit corporate tax reports at various stages, aligning with the specific phases of dissolution and liquidation. This reporting is distinct from the general business operations. The key phases where corporate tax reporting is necessary include:

A. Dissolution Notice to Tax Authorities:

• Initially, when the company embarks on the dissolution process, it must notify the tax authorities of its intent to dissolve. This notification should include information about the liquidator and the planned dissolution date.

B. Pre-Closure Tax Return:

• Before the final closure of the business, a pre-closure corporate tax return is required. This return should accurately reflect the financial status of the company up to the date of its cessation.

By adhering to these specific corporate tax reporting requirements during the dissolution and liquidation process, the company ensures compliance with tax regulations. Please note that a mere business closure notification is insufficient; proper corporate tax reporting at each phase is essential to fulfill legal obligations.

4. Debt Settlement:

• The company must settle all outstanding debts and obligations, including taxes, employee salaries, and contractual agreements.

5. Asset Liquidation:

• The company’s assets, including real estate and movable property, must be liquidated, and the proceeds are used to settle remaining debts and liabilities.

6. Cancellation of Business Registration (Business Termination Report to Tax Office):

• After all debts are settled and assets are liquidated, the company’s business registration is canceled. This step officially marks the end of the business entity.

7. Employee Settlement:

• If the company has employees, they must be informed of the dissolution and provided with their final paychecks, severance pay, and accrued benefits.

8. Official Gazette Announcement:

• The dissolution of the company is announced in the official government gazette to inform creditors and interested parties.

9. Record Preservation:

• The company is required to preserve its corporate records and documents for a specified period even after dissolution.

10. Repatriation of Liquidation Proceeds:

• Repatriating the liquidation proceeds to foreign shareholders can be a complex process in South Korea due to strict foreign exchange regulations. It’s crucial to seek the guidance of experts familiar with these regulations to ensure compliance. Here are the key steps involved in sending the liquidation funds to foreign shareholders:

A. Required Documents:

• Before initiating the fund transfer, ensure you have the following documents in order:
  1. Certificate of Registration for Foreign-Invested Enterprise
  2. Shareholder Registry
  3. Certificate of Seal Registration and Corporate Seal
  4. Business Registration Certificate and Certificate of Fact of Business Termination
  5. Certificate of Liquidation Completion
  6. Liquidation Report
  7. Tax Clearance Certificate
  8. Corporate Tax Return for Liquidation
  9. Power of Attorney

B. Visit to Head Office of the Transaction Bank:

• Foreign shareholders or their representatives must visit the head office of the designated transaction bank in South Korea to initiate the fund transfer. It’s essential to bring all the required documents mentioned above.

C. Compliance with Foreign Exchange Regulations:

• South Korea has stringent foreign exchange regulations, and repatriation of funds must comply with these regulations. The transaction bank will guide you through the necessary steps to ensure compliance.

D. Currency Exchange:

• Depending on the foreign shareholders’ preferences, the funds can be transferred in either Korean Won (KRW) or converted to another currency. Currency exchange services are available through banks, and the exchange rate will be determined at the time of the transaction.

E. Tax Implications:

• Keep in mind that there may be tax implications associated with repatriating funds, both in South Korea and the foreign shareholders’ home countries. Consult with tax professionals to address any tax-related considerations.

F. Documentation and Record-Keeping:

• Properly document and retain records of the fund transfer process, including transaction receipts, correspondence with the bank, and any relevant tax-related documentation.

Conclusion: Repatriating liquidation proceeds to foreign shareholders in South Korea is a meticulous process that involves adhering to strict foreign exchange regulations and providing the necessary documentation. Seek expert advice to navigate this process effectively, ensuring compliance with all legal and financial requirements. Please contact at siyoon@theclacc.com for more information.